It didn’t take long for that original tariff of just 5 percent to climb higher. And it also was just a matter of time before politicians begin imposing special tariffs on selected imports in response to pleading (and goodies) from various interest groups.

Today, government’s power over trade enables some utterly disgusting and oleaginous examples of insider dealing and rank corruption.

For instance, the Wall Street Journalis reporting about an odious example of unjust enrichment thanks to protectionism.

…tariffs on imports of newsprint…have been cause for celebration at private-equity firm One Rock Capital Partners LLC. Government records show that a team from the New York-based firm approached the Commerce Department, including one meeting with Secretary Wilbur Ross, saying Canadian newsprint imports were hurting One Rock’s investment in North Pacific Paper Co., a paper mill also known as Norpac. Commerce responded to One Rock’s appeal by setting tariffs on Canadian imports, causing newsprint prices to jump by as much as 30%, significantly lifting Norpac’s business prospects.

Yes, your read correctly.

Some bigwigs bought a paper mill and then used their connections to undermine competition from Canadian paper mills.

They get rich, but only by manipulating the levers of power, not because they provide value to consumers.

…the price surge threatens the viability of small-town papers across the country, forcing reduced publication days, layoffs and other cut backs. Canadian mills have historically supplied a large portion of U.S. newsprint. “This whole play by Norpac basically disrupted an entire industry,” said Paul Boyle, senior vice president at the News Media Alliance… The tariffs represent a remarkable success by a relatively little-known private-equity firm at pulling the levers of power in Washington for advantage. …Canadian Ambassador David MacNaughton called Norpac a “rogue actor seeks to game American trade laws for its own short-term advantage, while putting thousands of U.S. and Canadian jobs at risk.”

The obvious takeaway from this story is that protectionism is bad for the U.S. economy. Yes, a few rich insiders pocket some undeserved profits and there will be a few more workers at one plant, but those results will be easily offset by the loss of jobs and income elsewhere in the economy because of the adverse impact on newspapers, advertising, and related sectors.

But I want to highlight another negative effect. I wrote back in 2011 that there are many well-meaning folks on the left that support class-warfare policies because they assume that rich people got their money illegitimately.

Well, this story is sad confirmation that this is often true.

I tell all my statist friends that punitive and destructive taxation is not the right response to this kind of sleaze. Instead, we need to get rid of protectionism (and subsidies, cronyism, and other forms of special favoritism). Make sure we have a system where people instead get rich by satisfying the needs and wants of consumers.

Part of the problem is that there is a big benefit to one small group and a small cost each to everyone else. Suppose someone convinces the government to give him $10 million. It is well worth his time to work hard, even to spend considerable money, to get that handout. But the cost is divided among 100 million taxpayers. It costs each taxpayer 10 cents. Even if you were absolutely certain that just sending a letter to your congressman would stop the handout, it wouldn’t be worth the cost of the stamp.

If there was only one such handout in existence, that would pretty much be the end of the subject. Yeah, it’s sleazy and stupid, but it’s not worth worrying about. Indeed defenders of useless government programs often make essentially this argument: Hey, what are you so worked up about? This program only costs the average taxpayer 10 cents!

The problem, of course, is that there isn’t just one sleazy handout or worthless government program. There are thousands of them. And the cost adds up. We’ll never beat them attacking them one by one. They have to be attacked en masse.

In a mixed socialist/capitalist economy such as ours, when a business faces tough competition, they have three choices: (a) Improve your product or service; (b) Cut costs; (c) Get the government to impose costs on the competitor. Option (c) is almost always cheaper and more efficient. Developing a better product requires skilled engineers, hard-working line workers, and/or talented support staff. In some industries it can take years and cost millions of dollars. Getting favors from the government requires perhaps tens of thousands of dollars in bribes … I mean campaign contributions .. and/or a skilled lobbyist or two.

[…] of connected companies. The purpose of policies such as ethanol handouts, the Export-Import Bank, protectionism, tax favoritism, bailouts, subsidies, and green energy is to provide unearned wealth to the friends […]